Admist the festive season Chris Bambery asks what 2017 holds in terms of what affects us most directly: jobs, housing, income - in other words the economy
I don’t want to put a dampener on the turkey and stuffing but I think we should all be very concerned because the outlook is not good. The media focuses on political instability in the wake of Brexit, Trump’s election, the Italian referendum and so much more. It is true the world order is chaotic. That this is the consequence of four decades of neoliberalism and of disastrous Western military intervention is too often skipped over. But I want to focus on the economic side.
Global trade is stagnant. That follows a steep decline after the recession which was triggered by the 2008 financial crash. Investment has not recovered in large part because the opportunities for profit are limited and over-subscribed. US non-financial corporations have stashed away some $1.84bn in cash, most held overseas to avoid US tax (Trump is promising a tax holiday to bribe them into repatriating it). That is mostly in the pockets of the top 25 US corporations, the likes of Apple, Microsoft and Google owner, Alphabet. But those same non-financial corporations are liable to $6.6bn of debt. That’s not very stable.
US firms are not investing but instead holding onto cash because that will drive up their share price. It was a similar story with the Bank of England’s Quantative Easing programme. It handed out cash to companies in the hope they would invest. They didn’t. They used it to drive up their share price in the main. British companies hold some £500bn in cash. As a share of GDP, corporate cash has risen from about 20 per cent in 1987 to about 30 per cent today.
The other way corporations spend money is in mergers and acquisitions, which are rising sharply. That is a risky business because capitalism tends to drive investment into areas where they hope to make a quick buck, but some do and many don’t. The classic case was the dot.com crisis at the start of the last decade when there was a rush to invest in high tech firms, many start-ups. As it became clear most of these investments were duds there was a rush to sell and the market collapsed. The US economy suffered a hit.
That’s a reminder of what Karl Marx argued. Capitalism is an economy based on a rush to make a profit. In that rush capitalists over-invest or over-accumulate. As they compete they undermine profitability. Earlier I wrote on the global shipping industry which is currently experiencing such a crisis.
It’s an industry which in the last six months has seen a major bankruptcy, mergers and state bailouts. As cargo prices fell, over capacity grew and global trade slipped. The major corporations, which dominate shipping, kept investing in larger vessels. In a game of last man standing they were hoping their rivals would go to the wall and they’d survive to pick up the pieces.
US car production is currently booming but underlying that is the fact that carmakers are boosting up sales by giving out loans to virtually anyone who applies. Outstanding debts totalled $1 trillion in the third quarter of 2015. Some 19 per cent are sub-prime or even “deep sub-prime,” which means they are unlikely to be repaid. Ghosts of 2008!
A number of ruling-class economists have developed a theory long shared by a section of Marxist economic writers: that capitalism is in permanent crisis or stagnation. That isn’t true in that capital has been making profits, and big profits, since the 2008 crash – look at Apple. Microsoft and Alphabet in the US, or even Ford and General Motors.
One reason why some Marxist writers argue this is because they look at the economy and compare it with the period of the 1950s and 1960s, the post-war boom that crashed in 1973. But far from taking that as the norm it now looks like the exception. Rather the US economy seems to have returned to an established pattern of crises every 8 or 10 years. So 1980-92 saw the longest slump since the 1930s, 1987 a stock market crash, the East Asian crash of 1997, the dot.com collapse in 2000 and of course the 2008 collapse. In between the US economy grew and recorded profits. The global economy grew with the rise of China above all.
The great neoliberal offensives of the 1980s, usually associated with Margaret Thatcher and Ronal Reagan but a feature of Western capitalism more generally, drove down wages and working-class organisation, which was accompanied by the switch of production to Asia in particular (or often the fear among workforces of such a switch). This led to a fall in wages and an increase in productivity to the benefit of capital.
In the four decades of class war it’s our side that has taken the hit. But the reality of over-accumulation, and consequently falling profits, always returns; an unwanted guest but a regular one.
Other difficulties face global capital. Japan continues to stagnate as it has for two decades and much of Europe now follows suit. In part this is because of austerity programmes and high debt, most obviously in the case of Greece, but behind it is a more fundamental reason. In the previous decade German capitalism used a social democratic government to drive down wages and thus labour costs. Cutting production costs allowed it to grow exports, feeding off China’s growth but also effectively dumping goods on Southern Europe at prices with which those companies could not compete.
Post-2008 when easy money was available governments, banks and companies could borrow to fill the gap. After 2008, as the banks fell, the state stepped in and nationalised their debts. We’re still living through the hangover from that. And European banks are still in the mire, witness Deutsche Bank and our own RBS.
Their collapse, which is very possible, would thrust the European and UK economies downwards. But above all in 2008, the state had to step in to rescue capital, not just the banks but corporations like General Motors. The moot question is after those bailouts and the failed Quantative Easing programmes, what reserves have they in case of emergency? The answer is not much. The other factor rescuing global capital then was the ability of China to keep growing. But current growth is not what it was (although the UK government would die to achieve that).
As Xmas fades and the New Year approaches it becomes a time for prediction. I hesitate to say it but the US economy is set for a fall, and while it might not be the force it once was it still impacts the world. With that cheery thought enjoy your break, if you’re having one or can afford one!
Chris Bambery is an author, political activist and commentator, and a supporter of Rise, the radical left wing coalition in Scotland. His books include A People's History of Scotland and The Second World War: A Marxist Analysis.